Congress added a number of tax extenders and changes to retirement plan rules to a must-sign budget bill that was passed and signed into law right before the holiday break. Notably absent from the legislation is a technical correction of the Tax Cuts and Jobs Act (TCJA) drafting error regarding the depreciation life for Qualified Improvement Property – it remains 39 years, which makes it ineligible for bonus depreciation.
The new law extends retroactively some provisions that expired at the end of 2017, so amending certain 2018 returns may be called for. Most of the extended provisions are extended through 2020.
Key extended provisions include:
· The above-the-line deduction for higher education tuition and fees
· The treatment of mortgage insurance premiums as deductible interest
· The exclusion for discharge-of-indebtedness income on principal residences
· The 7.5%-of-AGI floor for deductible medical expenses
· The credit for qualified residential energy efficiency improvements
· The Work Opportunity Credit
· Empowerment Zone tax incentives
· The New Markets Tax Credit
· Reduced depreciation lives for racehorses, motorsports facilities, and Indian reservation business property
· The energy efficient commercial buildings deduction of Sec. 179D
· The biodiesel and renewable diesel credit (extended through 2022)
· The employer credit for paid family and medical leave
The changes to retirement plan rules are contained in the SECURE Act, which passed the House in July and was included in the year-end appropriations act. Key changes from this legislation include:
· Increasing the beginning age for required minimum distributions from 70½ to 72
· Removing the age limit on making contributions to traditional IRAs
· Allowing penalty-free withdrawals of up to $5,000 for a birth or adoption
· Requiring non-spousal inherited retirement accounts to be distributed within 10 years, rather than over the life expectancy of the beneficiary
The new law also repeals the changes to the Kiddie Tax rules that were made by the TCJA, eliminates the taxes on “Cadillac” health insurance plans and medical devices, and eliminates the tax on churches and charities that provide reserved parking for their employees.
These are just the highlights of the new tax law changes. If you have questions about how these changes will affect you or your business, contact your Boulay advisor.